Insurers finding a clever way to exclude preexisting conditions despite Obamacare rules

A friend in the healthcare biz told me that insurers have found a way around the Obamacare requirement that customers be welcomed despite preexisting conditions. The government left insurance companies and doctors the freedom of association. For conditions that are expensive to treat the insurance company will limit reimbursement to a handful of specialists with inconvenient locations, hours, and availability.

If it takes more than a year in Massachusetts to see a primary care doctor for a regular exam (see the end of my Bad Pharma review), just imagine how long it will take expensive-to-treat patients who choose one of these carefully crafted plans to see the specialist who can prescribe them a $100,000 per year medication!

23 Comments

  1. Jean-François Noël

    July 20, 2014 @ 10:58 pm

    1

    I don’t understand. Are you saying Obamacare is causing this problem or that relying on private insurance for healthcare is naive at best? Maybe you’re trying to say something else, I just don’t get it.

  2. Izzie L.

    July 21, 2014 @ 8:53 am

    2

    News Release: Blue Cross/Blue Shield of Massachusetts today announced that Dr. George T. Witherspoon of N. Adams, Massachusetts, will henceforth act as the sole provider of medical services under all of BC/BS’s health plans. Dr. Witherspoon’s office is currently accepting appointments for May of 2041…..

  3. philg

    July 21, 2014 @ 8:58 am

    3

    Jean-Francois: I’m sorry if I wasn’t clear in the original posting. I wasn’t trying to identify a “cause” for this problem. As you can see from http://philip.greenspun.com/politics/health-care-reform the way that the U.S. runs health care is 180 degrees opposite to what I would recommend if I were designing a system.

  4. Izzie L.

    July 21, 2014 @ 9:54 am

    4

    Your reform plan made (makes) tremendous sense (your suggestion #5 to shut down the VA Hospitals was particularly prescient) and therefore it has not the slightest chance in hell of ever being adopted. There are billions if not trillions of $ at stake here – every $ of “savings” in your plan comes out of the pocket of one or the other of the current beneficiaries of the system and they will all fight tooth and nail not to have anyone move their cheese.

    Insurance company’s refusal to take people with “pre-existing” conditions was not because they are evil but due to the basic economics of the insurance business (Obama can try to repeal all sorts of laws but he can’t repeal the laws of economics any more than King Canute can command the tide). First of all, since insurance is a form of bet, there must be risk associated with that bet – you can’t make a fair “bet” on a sure thing. If you could wait to buy fire insurance AFTER your house burned down, you could save a lot on premiums in the meantime and still collect, but the insurance company would either go broke or have to pass the cost of your “savings” on to the other policy holders. 2nd, and related, “adverse selection” will destroy an insurance risk pool. Insurance premiums are based on actuarial assumptions as to the likelihood and cost of the covered risks. If either one of these is significantly greater than the average, the insurance company is going to lose money on you and next year they will need to raise the premiums. This sets off a cycle where the lowest risk policy holders flee (they are the suckers in the pool because they are going to pay far more than they can expect to collect) and you get more and more of the highest risks. Obamacare was supposed to fix this by FORCING everyone healthy to be a sucker, whether they wanted to or not, but it’s not clear that they really rounded up enough suckers.

    One of the problems with “health insurance” in the US (and Obamacare only made this worse) is that part of it is not really “insurance” at all. Normally, on your homeowners or auto policy, you collect nothing unless something pretty bad has happened (and in return the premiums are not that much). When your toaster breaks at home, you don’t submit a claim to your homeowner’s policy. If you did, toasters would cost $500 to account for all the administrative costs, price gouging by toaster providers, etc. But we (or our employers) all pay in huge amounts for health “insurance” and in return expected to be reimbursed for routine expenses (Obama care adds a politically influenced list of even more mandated coverage – contraception, sex change operations, etc.). That’s not “insurance” at all. What we need is for people to go back to paying for their own routine health care (which would make them price conscious) and only insure catastrophic risks.

  5. Jean-Francois Noel

    July 21, 2014 @ 11:45 am

    5

    Philip, Thanks for the link, it was an interesting and informative read. So I guess, the reform is flawed we need a different reforms is what you are saying. This clever evasion is just an example of flaws in the current reform.

  6. philg

    July 21, 2014 @ 11:55 am

    6

    Jean-Francois: I actually don’t think it is reasonable to use the term “reform” when talking about a change to the laws. I used it in my article title because it was a response to proposed “health care reform.” But changing the laws is best described as “changing the laws”. I don’t think there is any evidence that the U.S. has better laws today versus the laws in 1950, for example, despite 75 years of “reform”. There is no disputing that the laws are different, of course, and that they are better for some people, but I don’t know that there is any evidence that they are better for society overall.

  7. Izzie L.

    July 21, 2014 @ 12:12 pm

    7

    The word “reform” (at least on its face) has no inherent connotation of making things better (though it would be strange if someone passed a law with the intention of making things worse – “reformers” always imagine that their reforms are for the better even if they don’t turn out that way). Form is from the Latin forma – a mold. So to reform is to mold again, to recast. To be accurate, you would call it Health Care LAW Reform (which means exactly the same thing as your “Changing the Health Care Laws”) but it would be a meaningless exercise if you passed laws that did not change the underlying systems, so Health Care Reform is also the same thing.

  8. E. Rekshun

    July 21, 2014 @ 3:13 pm

    8

    @Izzie L: That’s not “insurance” at all.

    Right, it’s more like a discount plan.

    What we need is for people to go back to paying for their own routine health care (which would make them price conscious) and only insure catastrophic risks.

    Right, and before obamacare, one could buy a high-deductible health insurance plan covering catastrophic risk. I understand that obamacare now disallows those plans.

  9. Duke Briscoe

    July 21, 2014 @ 4:57 pm

    9

    This is the “narrow networks” feature that insurance companies use to cut costs. The federal government is looking at modifying the requirements on insurance policies to avoid overly narrow networks. States can also strengthen the requirements. This is a good article about the issue : http://www.nytimes.com/2014/07/20/us/insurers-face-new-health-law-rules-to-widen-networks-and-prevent-surprise-bills.html

  10. E. Rekshun

    July 21, 2014 @ 6:11 pm

    10

    @Duke: This is the “narrow networks” feature that insurance companies use to cut costs…

    I formerly worked as a Network Manager for a large health insurer. One main part of my job was to continuously recruit new doctors into our network. A large network was a major factor in selling our group health insurance plans to employers. When bidding for multi-year contracts to provide health insurance for a particular employer, the network size was a major ranking factor. Since employers are not the users of obamacare, I guess there is no need for obamacare insurers to build large networks.

  11. Izzie L.

    July 22, 2014 @ 9:25 am

    11

    >Since employers are not the users of obamacare

    If by “Obamacare” you mean the individual policy marketplace, then you are correct. Many of the provisions of Obamacare (e.g. various mandatory coverages) apply to employer provided insurance also.

    Group plans, especially for large employers, constitute natural risk pools so you don’t have the as big an adverse selection problem you have in the individual marketplace (but it is still an issue – see below). While large employers can still shop their policies and too narrow a network will piss off your employees (who you are presumably trying to please to some extent), on the other hand, even a few ultra expensive cases can mess up the economics of your pool (which will in turn affect the employer’s premiums). The insurance company motto is “don’t get mad, get even” – their model (and it has to be this if they are going to remain in business) is that they have to collect at least as much in premiums as they pay out in claims (plus administrative costs plus profit). So the employer has to weigh keeping its employees happy with a broad network vs. trying to contain costs. Guess which one will win in today’s marketplace?

    The US model of employer provided health insurance got started during WWII, when there were price caps on wages (but not on fringe benefits) and employees were in short supply. One way an employer could lure people (since they couldn’t raise cash wages) was to offer “free” health insurance to employees (and the cost at that time was minor – you had a young, healthy work force and there were few expensive treatments available). Now the situation is reversed – employers have the upper hand in most industries. They are being forced by Obamacare to continue offering health insurance whether they like it or not, but they will surely look for ways to contain costs, including narrowing the network.

    Once upon a time, if social democrats wanted to create some new social program, Congress would pass a law providing those benefits and levy taxes to pay for that benefit – it was pretty straightforward. Nowadays, it is politically impossible to raise taxes for the most part. Obamacare was supposed to provide millions of uninsured people with health insurance – a very expensive proposition. Since it was impossible to raise enough taxes to pay for this (Obamacare does contain a tax component but not enough) the rest was made up thru hand waving imaginary “savings” that would result from the “reforms” but won’t pan out in reality. So in a year or two the other shoe will drop.

  12. Vince

    July 22, 2014 @ 9:28 pm

    12

    Once upon a time, if social democrats wanted to create some new social program, Congress would pass a law providing those benefits and levy taxes to pay for that benefit – it was pretty straightforward. Nowadays, it is politically impossible to raise taxes for the most part. Obamacare was supposed to provide millions of uninsured people with health insurance – a very expensive proposition. Since it was impossible to raise enough taxes to pay for this (Obamacare does contain a tax component but not enough) the rest was made up thru hand waving imaginary “savings” that would result from the “reforms” but won’t pan out in reality. So in a year or two the other shoe will drop.

    You make some good points here, but there are certain things that you’re not considering. The previous administration wanted to add prescription drug coverage to Medicare. That was probably the most expensive new social program in over a decade. As you stated, raising the necessary revenue was unpopular, so the program was implemented without ant corresponding new revenue at all. The vice president at the time was famously quoted as saying “deficits don’t matter”.

    Apparently the fundamental laws of economics changed on the day that Mr. Obama moved into White House. Suddenly deficits mattered to most people in DC. If you look at international comparisons, it is apparent that the American health care industry constitutes a giant drain on the economy, probably on the order of a few percent of GDP. We’d be better off if the whole industry was simply eliminated. It is too politically powerful for that to occur, due to the passivity of the American people. So an important part of Obamacare had to involve helping people buy insurance from that industry.

  13. Izzie L.

    July 23, 2014 @ 1:07 am

    13

    >We’d be better off if the whole [American health care industry] was simply eliminated.

    Depends on what you replace it with. VA Hospitals?

    >So an important part of Obamacare had to involve helping people buy insurance from that industry.

    The insurance industry and the health care industry are not quite the same thing. The insurance industry only skims a few points off of the premiums for themselves and pay the rest to the health care industry (hospitals, doctors, pharma, etc.) . Since they are working with big numbers, even a few % is many billions of $, but if you got rid of insurers you would have to replace them with a bureaucracy that might be even less efficient.

    Regardless of whether double standards were applied to Obama vs the pass Bush supposedly got on Medicare drug coverage ( I think this had more to do with the fact that seniors are a favored group – would you deny granny her heart pills?), Obama’s way(s) around the revenue problem were a kludgy response that probably won’t last beyond his administration without needing major patches to prevent it from crashing and burning. Even though Medicare prescription coverage was unfunded, it has “stuck” – there doesn’t seem to be any pressing need to reform the reform. I don’t think you will be able to say the same about Obamacare in 10 years.

  14. Izzie L.

    July 23, 2014 @ 1:22 am

    14

    >Apparently the fundamental laws of economics changed on the day that Mr. Obama moved into White House. Suddenly deficits mattered to most people in DC.

    PS The Bush Medicare expansion was not exactly wildly popular in DC either – it just squeaked by in the House (and even that because they held the balloting open much longer than normal and because Bush’s people lied about how much it was going to cost). Presidents do what they gotta do in order to get re-elected (Bush scored weakly among senior until he passed this law), which may or may not line up with the political interests/principles of various Congressional members.

  15. Vince

    July 24, 2014 @ 1:28 pm

    15

    You’ve probably read that nearly every developed country has a health care system that costs much less than the American system. Many of them provide the same quality of health care. So there are a number of models to choose from. The one that gets the most attention is Canada’s, which is often referred to as a “single payer” system. If we were to expand Medicare to cover the entire population, we would have something very similar to the Canadian system. Medicare may be the popular institution in American life.

    Regarding the VA, I read an article about the very high level of care that was written around 10 years ago. I haven’t read much a lot about the recent problems, but it’s possible that Bush and Obama failed to seek the additional funding necessary to treat the new patients coming home from Afghanistan and Iraq. This is from that 2005 article:

    Who do you think receives higher-quality health care. Medicare patients who are free to pick their own doctors and specialists? Or aging veterans stuck in those presumably filthy VA hospitals with their antiquated equipment, uncaring administrators, and incompetent staff? An answer came in 2003, when the prestigious New England Journal of Medicine published a study that compared veterans health facilities on 11 measures of quality with fee-for-service Medicare. On all 11 measures, the quality of care in veterans facilities proved to be “significantly better.”

    Here’s another curious fact. The Annals of Internal Medicine recently published a study that compared veterans health facilities with commercial managed-care systems in their treatment of diabetes patients. In seven out of seven measures of quality, the VA provided better care.

    It gets stranger. Pushed by large employers who are eager to know what they are buying when they purchase health care for their employees, an outfit called the National Committee for Quality Assurance today ranks health-care plans on 17 different performance measures. These include how well the plans manage high blood pressure or how precisely they adhere to standard protocols of evidence-based medicine such as prescribing beta blockers for patients recovering from a heart attack. Winning NCQA’s seal of approval is the gold standard in the health-care industry. And who do you suppose this year’s winner is: Johns Hopkins? Mayo Clinic? Massachusetts General? Nope. In every single category, the VHA system outperforms the highest rated non-VHA hospitals.

    http://www.washingtonmonthly.com/features/2005/0501.longman.html

  16. Izzie L.

    July 25, 2014 @ 10:08 am

    16

    >Medicare may be the popular institution in American life.

    Not among doctors. Some 20% of doctors will not accept new Medicare patients because the reimbursement is inadequate and the # goes up every year. The # would be even higher except that each year Congress passes a special exemption that alters the reimbursement structure (upward) from the legally mandated fee schedule.

    http://www.forbes.com/sites/merrillmatthews/2013/11/25/when-will-the-government-start-forcing-doctors-to-see-obamacare-patients/

    Every attempt at price controls in history in any industry has failed because if you set the price lower than the point where the supply and demand curves meet, you will have more demand than supply and shortages will result. The socialist inclination to call the suppliers “greedy” or “price gougers” or whatever (which they always do in such cases) or to force the greedy people to sell their wares (which in the case of services poses a 13th Amendment problem) does not change the short term result and in the long term discourages people from entering the industry. So you end up in a downward spiral ala Venezuela.

  17. Piese Auto

    July 25, 2014 @ 10:27 am

    17

    Obamacare is just an excuse to power up those big giant insurance companies. I`m not against “health insurance for everyone” but at least let me choose my poison if I must.

    As Izzie says, price control can`t be a successful idea in a free market because shortages will be the only result. It`s hardly a talk about socialism and capitalism, merely just a talk about greedy insurance CEOs and corporate interest backing this law in its current form. Just my 2cents

  18. Vince

    July 25, 2014 @ 4:14 pm

    18

    Every attempt at price controls in history in any industry has failed because if you set the price lower than the point where the supply and demand curves meet, you will have more demand than supply and shortages will result.

    Once again, you need to read about international comparisons. Canada spends around 2/3 of what we do on health care. Other developed countries spend less than that. There’s no evidence that we get better care for all of the extra money that we spend. There’s currently a series in the NY Times that covers various types of health care. It shows that nearly every developed country controls prices in some way without losing quality of care.

    http://www.nytimes.com/interactive/2014/health/paying-till-it-hurts.html?_r=0

    One other fact to consider is that the patent protection given to pharmaceutical manufacturers could be considered an interference in the free market.

  19. philg

    July 25, 2014 @ 4:19 pm

    19

    Vince: I don’t think other countries are an example that price controls are effective. The U.S. has a very limited supply of doctors compared to, say, France. So if insurance companies and the government refuse to pay them what would be a market-clearing wage they can insist on being paid by patients directly. A country such as Canada where essentially there is only one buyer (the government) has the power to set prices due to http://en.wikipedia.org/wiki/Monopsony .

    As you point out, the U.S. government by granting patents and restricting the supply of doctors (by making it impractical to open new medical schools without the approval of existing doctors and by making it illegal for European-trained doctors, for example, to practice here) pushes up costs in a way that can’t be undone by top-down price controls.

  20. Henry

    July 25, 2014 @ 5:18 pm

    20

    Anecdotal socialized medicine story; we were in France last week, and the afternoon of our flight home my son had some strange pain in his chest when inhaling. We went over to the local pediatrician (although we don’t have French health insurance) and she looked him over and suggested as a precaution we have an X ray and some blood tests done to rule out a pulmonary blood clot. We paid her something like ten or twenty euros in cash.

    So we drove over to the hospital, and they happened to have an empty emergency room for pediatrics, they saw us right away, did an X ray and EKG and had the doctors look them over and told us things looked fine, it was probably muscular, we could go ahead and catch our flight. There was no bill at all.

    Try that in a US hospital. Egads.

  21. E. Rekshun

    July 25, 2014 @ 6:27 pm

    21

    @Henry: Try that in a US hospital. Egads.

    Millions of Americans do that every day. It’s called medicaid and charitable care.

  22. Vince

    July 25, 2014 @ 6:38 pm

    22

    Phil: You may be correct that the most effective way to control costs is to have a single payer system. That could be the reason that single payer is so popular among Americans who have studied the issue, such as the group Physicians for a National Health Program  www.pnhp.org). On the other hand, I’ve also read that Germany has a large number of non-profit insurance companies who negotiate as a group with doctors and pharmaceutical companies.

    You also make a good point about the supply of doctors. You’re probably aware of the H1-B visa program used to bring in foreign engineers. It’s very popular with the major software firms, who often lobby Congress to increase the annual number of available visas. However, the idea of bringing in large numbers of foreign doctors to bring down health care costs is politically impossible, due to the fact that doctors are a well-organized profession.

  23. philg

    July 25, 2014 @ 6:41 pm

    23

    Vince: Yes, as noted in http://philip.greenspun.com/politics/health-care-reform it is not even legal for a doctor trained and licensed in New York to practice in Maryland or Massachusetts! We do virtually everything possible to reduce the supply of health care delivery and then we wonder “Why is the price so high?”

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